By Alison Sider
U.S. airlines that operate the Boeing Co. 737 MAX are facing the prospect that the aircraft's prolonged grounding could weigh on their earnings and operations well into this year.
Southwest Airlines Co. Chief Executive Gary Kelly said Thursday that the carrier will likely have to push back its plans for the MAX to return to flight in June. Southwest and American Airlines Group Inc. also said they remain in discussions with Boeing about appropriate compensation for their mounting costs.
"We continue to incur financial damages in 2020, and we will continue discussions with Boeing regarding further compensation," Mr. Kelly said in a statement.
The MAX has been grounded world-wide since last March following a pair of plane crashes within five months that killed 346 people. The situation has been costly and at times chaotic for airlines that have had to deal with months of uncertainty about when they will be allowed to fly the jets and when they can expect the dozens of planes they had on order.
Southwest had 34 MAX jets at the time of the grounding, more than any other airline, and expected to have 75 by the end of 2019, with another 38 due to be delivered in 2020. The Dallas-based carrier said its profit fell 21% in the fourth quarter to $514 million due in part to higher costs associated with the grounding. Southwest said that included the impact of compensation from Boeing that it partly shared with employees after striking a deal with the plane maker late last year.
Mr. Kelly said the grounding will restrain Southwest's plans to expand its network this year. Southwest had planned to expand flying capacity by 5% in 2019, but instead cut flying by 1.6% because it didn't have enough planes to meet those plans. Southwest said it expects to decrease capacity by 1.5% to 2.5% in the first quarter of this year.
American, which like Southwest has removed the MAX from its schedule until June, said Thursday that it continues to assess that timeline. Chief Executive Doug Parker suggested it could be late summer or early fall before the plane is flying again.
The Fort Worth, Texas, carrier said strong demand for travel helped boost its profits to $414 million, or 95 cents a share for the fourth quarter, compared with $325 million, or 70 cents a share, in the prior year.
Shares in American fell less than 1%, and shares in Southwest rose 1.8%.
American has previously said it believed the grounding would reduce its 2019 earnings by $540 million. It didn't provide an updated estimate of the impact on Thursday. American has also struck a deal with Boeing to cover costs incurred in 2019.
"We'll continue to hold Boeing accountable for future financial damages to protect our company and our shareholders," Mr. Parker said during a conference call with analysts and investors.
Boeing said earlier this week that it doesn't expect regulators to approve the return of the MAX until midyear -- months longer than most analysts expected. The manufacturer is now recommending that pilots be required to train in simulators before flying the MAX, a fresh complication for carriers making plans to reintegrate the plane into their schedules.
United Airlines Holdings Inc., which had 14 MAX jets in its fleet and was expecting 16 more last year, hasn't detailed the cost of the grounding, but executives have said the shortage of planes has held back United's plans to add to its domestic network. United executives said Wednesday that they no longer anticipate being able to fly the MAX this summer.
It isn't just Boeing causing delays for airlines. JetBlue Airways Corp., which doesn't fly the MAX, said its capacity growth was constrained by delays securing its Airbus SE A321neos. JetBlue said it has identified used planes to add to its fleet if the delivery delays persist.
JetBlue reported fourth quarter profits of $161 million, or 56 cents a share, compared with $170 million, or 55 cents a share the previous year, as the carrier streamlined costs but was affected by volatility in Latin American and Caribbean markets.
American and Southwest have both contended with problems aside from the MAX over the past year. Both have had disputes with unions that represent their mechanics that spilled over into airline operations. American alleged that its mechanics were engaged in a concerted slowdown that led to a spike in delays and cancellations last year. It is still trying to negotiate a new contract with the mechanics.
American's President Robert Isom said the airline's operations turned a corner in the final months of last year and are now running more reliably, which has helped it win over corporate customers and control costs.
But the MAX grounding remains a threat to the carrier's performance.
"There's a huge transfer of share from carriers that operate the MAX to carriers that don't operate the MAX," said Vasu Raja, American's senior vice president of network strategy.
Write to Alison Sider at email@example.com